governance, political economy, institutional development and economic regulation

Posts tagged ‘NREGA’

Growth with jobs is the new Eldorado. At its core, the raging debate around job creation in India is really about how far India has traveled down the conventional path of industrialized development and its proxy — long-term employment, with defined benefits and social security. This metric of economic performance is anachronistic in the post-industrial ecosystem.

Long term, formal employment is declining even in the developed economies. The future of work is casual, possibly off-site, with skill sets and job descriptions that are constantly adapting to technology and re-schooling a necessity even for the middle aged. We may never ever reach the copybook stage of industrial age employment. India, unlike China, is largely informal and ineffectively regulated for work standards and safeguards. Out of a workforce of around 427 million, formal employment is just 14 per cent at 60 million.

Mind you, there are 972 million people more than 15 years of age who could work. But the lack of opportunity in the workplace and cultural constraints keep 56 per cent of then (a vast majority of them being women) at home. This probably explains our penchant to get to a higher level of formalized employment, say 60 per cent of the workforce, and thereby resemble a developed economy.

Statistical jousts around employment

The ongoing statistical debate between government economists (of the Niti Aayog and those in the Prime Minister’s Economic Advisory Council) and external experts (from CMIE, for example) revolves around the number of jobs created since 2014 as an index of economic performance. The CMIE data, based on quarterly surveys, shows that net-job creation in 2017, over the previous year, was just 1.4 million, primarily due to large job losses of seven million among young adults (aged 15-24) and three million among veterans (aged 65 or above) significantly diluted the positive impact of an addition of 12 million jobs in the age group of 25 to 64.

The government appears disinclined to trust large surveys. It prefers to rely on the monthly payroll data. There is the inexplicable issue of just 12 per cent of women, of 15 years and above, being part of the workforce in the CMIE survey data. Gallingly, 21 per cent of Saudi Arabian women work. Can it be that 88 per cent of Indian women above 15 years actually do not wish to work? Compared to such quirks in the CMIE survey data, there is a comfortable certainty about the payroll data. The only problem is — payroll data is unlikely to provide the granularity required across a largely informal economy.

Even if one is disinclined to believe the outlier estimation by economist Surjit Bhalla, of an addition of 15 million jobs in 2017, the good news is that data from the Employees Provident Fund Organisation (EPFO) shows an addition of three million jobs during the six months till February 2018 — an encouraging growth of 10 per cent per annum over the 60 million employee accounts. It is unclear, however, if these are all new jobs. The digital outreach, increased tax oversight and the GST implementation are all encouraging formalisation of operations, including payments to existing informal workers. Payroll data from the New Pension Scheme for government employees shows a similar happy trend, with an addition of 0.4 million employees to the base of around 5 million employee accounts.

It remains unclear where this statistical jousting is leading to, except to the scoring of political brownie points with the relevant political constituencies.

Workers under threat – too many, chasing too few jobs

For the large mass of workers, a “formal” sector “good” job in the classic industrial sense of the term is becoming increasingly unlikely. Humans are under threat. Karl Marx was on the button, two centuries ago, when he intuited that it is humans who add value in the economy. We still do. But we became so good at extracting value from human effort that we have marginalized ourselves. Machines today, substitute for all but the most advanced cognitive human skills. Once machine learning becomes deeper and autonomous of human effort, technology czars like Ellon Musk, presciently point to a dystopic, machine versus man future for the planet.

We do not have to imagine what it will be like in in 2050. Even today, deepening levels of worker anxiety about retaining a job affects large swathes of the developed economies. Indians and others in the developing world are already well acquainted with this syndrome. We hesitate to take medical leave even when we are sick. And if you think that happens only in the informal sector, think again. Even politicians and senior government officials fear being nudged out, merely by not being visible.

Low levels of formal employment require enhanced government intervention. As work becomes intermittent or irregular, even for skilled employees, the potential loss of income must be cushioned by social protection schemes to keep individuals and families afloat.

Listen to the Jholawallahs

The NREGA program is a basic form of such cushioning, which benefits around 20 million manual workers. Jean Dreze is right when he asserts that access to work is more than just another way of putting public money into needy private hands. Aruna Roy has the same message. Collectives have a dynamic, which empowers the marginalised. They provide institutionalized support for challenging traditional, arbitrary and often illegal entitlements. They also establish a new and healthy tradition of direct democracy.

The early noughties presented a future which looked impossibly bright and full of possibilities, girded by shining bands of opportunity crisscrossing the globe. That vision has now dimmed. The environmental, cultural and institutional limits of globalization are now visible. We would do well, however, not to be blindsided by the inevitable ratcheting down of global aspirations. It could turn out to be a hard landing for the overly ambitious.

Adapted from the author’s opinion piece in The Asian Age, May 5, 2018 http://www.asianage.com/opinion/columnists/050518/jobs-nature-of-work-it-may-be-time-to-rethink-basics.html

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Times are tough. Exports are in free fall. The import bill is increasing as oil prices harden in response to the international oil cartel’s plans to cut production. Domestic demand is moribund despite the largesse of the Seventh Pay Commission for the public sector. The stock market has sagged. Informal sector jobs are under threat. We need a push to get people over this sullen hump.

Electoral compulsions

Four states, comprising one-fifth of the nation’s population, are about to elect provincial legislatures in the first quarter of 2017. From a national perspective, the BJP has little to lose but much to gain. Goa, that is ruled by the BJP, elects just two MPs; Punjab, ruled by ally Shiromani Akali Dal, elects 12; while Uttarakhand, ruled by the Congress, elects five MPs — which together account for a mere four per cent of the 542 seats in the Lok Sabha.

It is Uttar Pradesh, ruled by the Samajwadi Party, which is the real prize. It elects 80 MPs (just under 15 per cent of total seats) to the Lok Sabha. Varanasi is the Prime Minister’s adopted constituency. This is the Hindu heartland of India. A wipeout in UP may not directly impact the BJPs prospects irretrievably in the 2019 general election. But a win would surely be a grand start to the campaign.

Finance Minister as fire fighter

Finance minister Arun Jaitley seems eager to salve those burnt by “notebandi”. He may offer some tax relief in the coming Budget, but that helps only a tiny sliver of the population — just two per cent who pay income-tax. Lower indirect taxes are hostage to progress on the Goods and Services Tax (GST). But a GST with multiple rates, and with the highest nominal rate at 28 per cent, is unlikely to reduce the incidence of indirect tax or drive growth in GDP.

The FM had budgeted a nominal GDP of Rs 151 trillion for this fiscal, 11 per cent higher than the nominal GDP last fiscal. This is now unlikely for two reasons. First, growth in real terms will slip by between one to two percentage points. Second, inflation is lower by one percentage point. Taken together the nominal GDP increase will be eight, not 11 per cent, over last year. Tax estimates are based on “nominal” GDP — real growth plus inflation. So, tax collection at 10.8 per cent of GDP will also slip by about Rs 0.4 trillion from the budgeted amount of Rs 16.3 trillion. There is little headroom in this fiscal to play with tax reduction.

Even in the next fiscal, with significant economic headwinds and domestic uncertainties, the prospects for a revival in growth is wishful thinking. Tax reform with lower taxes seems a far cry. A temporary income support mechanism is more appropriate.

The losers

The population segment most affected by demonetisation is domestic migrant labour and their families in villages. Urban migrants live on and save from what they earn daily. Over a period of six months, the income shock will feed back into their families in villages as income transfers decrease or vanish and migrant labour return home.

The FM must provide a “package” to soften the hard landing at home for returning migrant labour. This is urgent. Migrant labour are highly aspirational, having seen the “good life” available in cities. Their aspirations must not be squashed. Of cours it is not easy to distinguish between those affected by the loss of employment and others who never had any. Targeted income support for migrants can be ruled out. But a more generic income support for all those with stressed incomes is not as wasteful as it sounds.

Income support for stressed families in villages

Three approaches can be combined to suit the context. First, borrow the concept of “helicopter money” from the much talked about income transfer scheme. Make the support freely available on demand with very selected and easily verifiable eligibility criteria. Second, revive the now defunct notion of “taccavi loans”, which were used in the colonial period as a famine relief measure. Third, use a participative and transparent good governance approach to identify the beneficiaries. Ranking families by the extent of income loss in open village meetings mediated by village-level government officers is a useful way to develop consensus and reduce the mistargeting. Lastly, devise the support mechanism in a manner which eliminates the undeserving.

Give consumption loans at market rates repayable in labour

The income support should be a loan and not a grant. This will deter those looking for a freebie. The interest rate should be reasonable but not subsidised for the same reason. Around 12 per cent per year, or one per cent per month can avoid misuse for interest arbitrage and yet peg it much lower that the unsecured informal market loans, which are available at an interest rate of 40 to 50 per cent per year, or between three to four per cent per month.

To further deter those looking for freebies and to make the scheme attractive only for those who really need the work, the loan and interest should be repayable only through around manual labour by the family in village works and not in cash. Around 50 days of labour can repay a loan of Rs 5000 along with accrued interest over six months. The advantage of this twist is that it leaves the migrant worker free to continue looking for work in cities,once he has secured a “taccavi” loan for his family to help them survive for six months without compromising the future through crippling debt. As in NREGA, the productivity of village-level work is very contextual and varies. But such inefficiencies are a small price to pay for the positive ripple effect of well targeted, publicly funded, social security schemes.

The fiscal burden is bearable.

Around 60-80 million such unsecured loans of Rs 5,000 each could cover all needy families (broadly 15 per cent households in urban areas and 30 per cent households in rural areas), with a sufficient margin to spare for the inevitable leakages from poor identification. The one-time cost of Rs 0.3-0.4 trillion can be met by either enlarging the allocation for NREGA (Rs 0.35 trillion for 2016-17) or by overshooting the fiscal deficit target by 0.25 percentage points (3.75 per cent instead of the budgeted 3.5 per cent). With weak retail demand, this temporary transgression from the fiscal deficit target is unlikely to be inflationary and in effect sustains rural demand.

Desperate times need innovation, with a human face, to soothe the hurt imposed by systemic shocks. Shielding the weak from the unbearable cost of bad economic decisions is a must, to preserve the consensus for change.